The Dispatch Podcast - Sen. Bill Cassidy on OPEC

Episode Date: October 12, 2022

With OPEC+ committed to gutting production, Americans are bracing for a gas price hike. This leads Sen. Bill Cassidy to wonder, how should the U.S. maintain a relationship with the Saudis when “what they do can make or break a family budget”? On the Senate Energy and Natural Resources Committee Cassidy calls for more market-based solutions to both bolster energy independence and get carbon emissions under control. He joins Sarah to wrestle with all these problems –– and their political implications –– before turning to the main event: the ultimate Louisiana VS Texas BBQ showdown. Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the dispatch podcast. I'm your host, Sarah Isgher. And joining us today is Senator Bill Cassidy from Louisiana, a neighboring state to Texas, but we'll have food arguments later on in the conversation, perhaps. We're going to talk energy production. What is actually going on with the OPEC cuts? What can be done about it? Whose fault it is and maybe whose fault it isn't? Thank you, Senator Cassidy. Oh, thank you so much for joining us. Hey, sir. Thanks for having me.

I want to start just with sort of a big picture argument, which I've heard, especially from the right, which is that gas prices going up are complicated in terms of what causes that immediate spike in prices, but that the Biden administration's overall antagonist. toward oil production is what prevents the U.S. from having more control over oil prices. And at the same time, you know, as someone who, again, comes from an oil-producing state of Texas, you know, how oil gets produced in this country is pretty complicated, too. A lot of what we get out of the ground here in the United States has to be refined elsewhere. And so the idea that simply cutting federal leases, for instance, which the Biden administration

certainly has done, A, it's a pretty long-term thing to open. open up federal leases, but B, it doesn't automatically, you know, go from the ground into your car either. I'm curious if you can give us a lay of the land of your perspective of what control is there from the federal government over oil prices? And is it fair to blame the Biden administration or would this be happening at this point under any administration two years in? Sarah, you got a lot in that question. Let's tease it apart. First, as regards oil supply. It's supply and demand. The less oil there is, the less there is to make refined products like gasoline.

The administration clearly has done their best to inhibit the production of oil and natural gas on federal lands. We could give lots of examples, but that doesn't seem to be in dispute. Now, you can argue that a temporary increase in supply may not make a difference tomorrow at the pump. It does make a difference in terms of the perception. of futures traders, and if futures traders know that there is going to be more oil being supplied, then absolutely that is going to drive down the price of oil, and therefore, that does translate into near-term decrease price of gasoline. Now, the next thing you raise, and you kind of do it kind of without directly saying, is, okay, do we have adequate refining

capacity? Would it matter if we had all the oil in the world? if you only have a certain amount of ability to refine. Well, of course not. You need to have a refining capacity. But it isn't just in the United States that we receive refined products. There are refineries in the Caribbean that we send oil to

that can then come back to us. And of course, those refineries have to pay market value and the cheaper their supply of oil, the less that they have to charge in order to recoup their prices. Now, in this whole mix, you can argue that the signals, the administration has sent to discourage the use of fossil fuel and fossil fuel byproducts has chilled investment both in the oil patch as well as in refining capacity.

So Phillips 66 had a refinery down in I think St. Bernard Parish or Plaquemines Parish, I think it's St. Bernard in my state. and, and I'm blanking for a second for someone who lives there, but they decided not to rebuild it after it was damaged after, I think, Hurricane Ida or maybe another hurricane. Similarly, Shell has demobilized a refinery, and now they're going to put it into renewable fuels. So the point is the administration has been so negative that if your company deciding to make a 30 to 50-year investment, would you make it in something in which this administration has clearly wants to decrease the use of the end product? And the answer is no. So I would say both directly and indirectly, they had had a major role in increase in the price of gasoline.

And what about the oil companies themselves? You certainly hear talking points that they could decrease the price of oil, at least somewhat, by simply not taking windfall profits when the price goes up. You know, I suppose, I don't know the oil business. And I can't. I don't know if ExxonMobil is doing everything right. I will say that there was a point during the pandemic in which the producer of oil had to pay people to take the oil off their hands. Literally had to pay somebody

because there was so much excess oil relative to storage capacity that they were losing money on every barrel they produced not just on, you know, we didn't make her cost. As in no, please, I'll give you three bucks if you'll take this barrel of oil off my hands. So at some point, if you level that out, you're going to find that it all balances out. I'll also point out that private equity has decreased their investment in the oil patch

precisely because returns were so low for so long during the pandemic. So arguably, if there's increased profit now, it probably is balanced by the negative profits they have for a while. All right, let's start walking through some of the last year's history that gets us to today. oil prices start going up last fall, you know, just under a year ago. Then in the winter, Russia invades Ukraine, prices go up even more. There's a big discussion at that point where the Biden administration says the price is going up because of Russia and the sort of more nuanced answer, no, no, the price is continuing to go up and now there's a piece of that price increase that is due to Russia, but the price was

already going up. You get to later in the late spring, early summer, Biden says he's going to tap the strategic oil reserves that's now at the lowest levels, I think in my lifetime. He meets with the Saudi crown prince. And fast forward to last week, OPEC says that they're going to cut production by two million barrels a day, and Vladimir Putin says that it's a very thoughtful response to the chaos being caused by the U.S. and the oil markets. Now, again, this is a very long and complicated question. So I do want you to tease it apart. What did the Biden administration do wrong? What did they do right in this? Because oil prices did come down in the summer. He met with the Saudis, something that for other

reasons was difficult for some people. And then we find out that the Saudis are going to, I mean, massively cut oil production, which will almost inevitably, first of all, help the Russians, hurt Europe who has been trying to implement a partial ban on Russian oil. And third, certainly raise prices for U.S. markets ahead of the midterm elections, which, if nothing else could be seen as the Saudis and others trying to hurt the Democrats. So where to start? First, I'll notice that it's never President Biden's fault when things are going wrong. Never. But it's all to his credit when things are going better. Same with every president, right? They take credit for the things that are going well. It's not

their fault when things go bad. You know, instead of teasing this apart, let's just jump right in, you know, like into a big pool of a question. There's so much false logic. in what the Biden administration has said, that first, they're killing the Keystone XL pipeline and doing everything they could to not allow increased production on federal lands had nothing to do with the high prices, which is to say that increased supply would not lower prices. And then they open up the Strategic Petroleum Reserve, effectively increasing supply in a bid to lower prices. So, one, we know that supply, you know, actually does make a difference. In this case, instead of pumping it out of West Texas or off the Gulf Coast of Louisiana,

we're just pumping it out of the Strategic Petroleum Reserve. That's number one. Number two, prices did come down, in part the Saudis did increase production for a while, but the rig count on private lands increased by about 50% year over year. So private production of oil increased significantly year over year, increasing the supply on the international market. Now, on the federal lands, it has been very slow to go up. But on private lands, it has gone, which is one more reason why the private sector should

be applauded and the public sector has to be held kind of, you know, suspect. As regards to Saudis, it is clearly in their self-menter. to keep the price of oil high. Biden has done everything since he first began running for president to hurt our relations with the Saudis. And so now that he's gone out of his way to offend them, thinks he makes it up by doing a fist bump. He's surprised that they are acting in their own naked self-interest.

Tell us more about that. What do you think he's done to antagonize the Saudis? And then why go visit? Why do the fist bump if the purpose was to antagonize the Saudis? Well, when he first started, of course, he was concerned about their human rights agenda. And so when he was running as a candidate, he was pure, and he was not going to tolerate such a regime, although by gosh, he's been trying to cozy up to the Iranians. And so somehow he was going to have a new era of our foreign policy and contrasting him with the Trump administration. And the reason he went and did a fist bump is now he's aware that they are going to get, Democrats are going to get killed.

electorally, at least in the House, in midterms, because of the high price of fuel, I solely think it was only a political play trying to drive down the price of gasoline to kind of preserve Democrats' chances in the midterm election. I hate to be cynical, but I'm not sure he so much cares about the average family trying to make ends meet as much as he does about getting Democrats elected to the House of Representatives, but that's an editorial comment. And so he goes over there trying to fist bump, trying to get them on board. can you please help us keeping your production up? And now the Saudis have decided to go their own way.

Now, all this was avoidable in our part. We were energy independent at the end of the last administration. And now we're not, effectively, at least not in terms of being able to control the price. And that is squarely the result of this administration policy. Will you define energy independence? Energy independence means that if there's two definitions, one in which we could have enough oil and gas produced in North America to meet our needs in a way which if there was another embargo as we had in the 70s, it would not affect us, okay, or minimally so. And you can argue we still meet that definition. There is another in which we are the world's swing producer in which our production is allowed to keep prices more affordable for the average family

here in the United States, and we can provide supply elsewhere in the world, in this case the Europeans, to help them meet their own energy demands, if you will, not just energy independent, but also the using energy as a geopolitical tool in order to achieve American national security goals. And we have lost that ability. Do you think it's fair to say that the Saudis favor the Republican Party and are very well aware of when our midterm elections are and what the result of cutting oil production by two million barrels a day will do domestic politics-wise in the U.S.? And if so, why do you think they favor the Republicans?

I don't know that they favor the Republican Party. I do know at some point that Trump called them up when they were flooding the world in oil in an effort to kind of undermine the ability for shale producers in West Texas to continue to produce, that Trump called him up and said, listen, if you're going to try and destroy our oil economy, we're going to pull our troops out of Saudi Arabia. And that got the attention of the Crown Prince, at which point they began to move prices back up so it wouldn't cause a recession in West Texas, et cetera. But in fairness in the United States. So Republicans have certainly had reasons to give the Saudi Prince heartburn. So I don't know who he favors beyond the fact

that he does not favor, doesn't appear to favor anything but their self-interest. What are we supposed to do about countries like Saudi Arabia whose oil production clearly affects U.S. prices? It affects those families that you're talking about that are going to the pump every week. And at the same time, geopolitically, I don't think any of us would like to be in bed with the Saudis. First, the more we produce domestically using the more we produced domestically, the more energy independent we are and the more we can help our allies, the more we are insulated from others. Now, by the way, we also increase the number of well-paid energy jobs in our country, and to the degree that we produce and we do, our energy using

higher, better environmental standards than they do in other countries, then we can actually have a positive effect on decreasing global greenhouse gas emissions. So we have all that in the mix. So if the United States made a decision to develop North American energy resources, we insulate ourselves from the Saudis. The Saudis are an important ally. Make no mistake about it. They're an important ally.

But you don't want to be so totally dependent that what they decide to do can make or break a family's budget. It didn't have to be that way. We were well on our way to having energy independence, as I defined it earlier, even more broadly, before President Biden took office. Not long ago, I saw someone go through a sudden loss, and it was a stark reminder of how quickly life can change and why protecting the people you love is so important. Knowing you can take steps to help protect your loved ones and give them that extra layer of security

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insurance from Ethos. Get your free quote at ethos.com slash dispatch. That's E-T-H-O-S dot com slash dispatch. Application times may vary, rates may vary. I want to talk about a little of the reasons behind this. I've found it interesting that in some ways you have the Biden administration and its various constituencies, and I mean constituencies within the Democratic Party, sort of having to have two very contradictory messages. They want to lower gas prices. but also they want the U.S. to move to green energy, which almost by definition would mean raising the price of traditional fossil fuels so that those green energies in their sort of nascent status can compete. So you want higher prices for fossil fuel-driven economies, cars, etc.,

so that people have this incentive to move over to electric cars, for instance, which right now are certainly more expensive than traditional combustion engines. So I want to talk a little bit about climate change in the Republican Party first. Senator Cassidy, what is climate change? Just very basic. What is your position? Yeah, so increased carbon intensity in which the carbon, which is emitted into the atmosphere, is more efficient at trapping heat, and that in turn causes very,

various effects such as rising sea levels. And so, ideally, you would lower carbon intensity for a variety of reasons. What next? One of the issues on the right is that even if you acknowledge that climate change is driven by humans, so it exists and it's our fault, you still have a problem because you have developing countries, developing economies, is the better. way to put it, India, China, who are trying to move millions slash billions of people into the middle class. And while the United States in Western Europe has had 150, 200 years of the Industrial

Revolution to get to pollute all we wanted to move people into that sector of our economy, they're just starting. And so their argument is, yep, we're going to start polluting a lot more, but you had 200 years to do it. So it'd be really unfair to tell us that we can't do it. So you should cut your carbon emissions now, we'll cut ours later after we've done our share of the polluting. And therefore, politically, it makes no sense for the U.S. to hurt our economy, you know, for our constituents to pay more when China's going to be an enormous polluter moving forward, contributing to climate change. And I'm curious, because you've also introduced a very interesting carbon border adjustment, and I wanted to make sure we had plenty of time

to talk about that, because I think that's an interesting way of leveling that discussion. Quickly, when you say leveling that discussion, what do you mean by that? Then on the left, I think there's been a lot of attention on simply addressing climate change in the United States without really regard to what's going to be happening in China and India. And on the right, the argument is, what's the point if we can't address what's happening in China and India? And your carbon border adjustment marries those two concepts a little bit by leveling the playing field for Chinese and maybe other goods coming from other countries that are polluting more in a way that I think cuts through some of that just partisan, very unnuanced conversation. Perfect. Thank you for the setup. We've not introduced the bill yet, but we have been talking about it public. Probably. You've put out press releases. Let me give some background, if you will. About 30-something years ago, Paul Kennedy wrote a book, The Rise and Fall of Great Powers. And there's a couple themes in the book, but one of the themes that he pointed out was the nexus between an economy growing and the amount of energy that the economy used and the ability to fund military strength. I would take Paul's, Paul Kennedy's paradox.

and I would add, at least in terms of China, the amount of greenhouse gases that they emit. Now, so what we know is that there is a strong statistical correlation. The better your economy, the more energy you use, that's how you actually produce all these goods. And as you have more disposable dollars in an economy, you're able to support your military. Everybody gets that. Now, what happened in 2005 is that the EU and the United States begin to decrease their emissions. Our emissions now are 21% lower than they were in 2005. Think about that.

21% lower now than they were in 2005, even though our economy is bigger, we have more people, and we have more oil and gas production and more manufacturing. The Chinese, though, the amount of increased emissions in the Chinese economy, is greater than the decrease in the U.S. and the EU put together. And why? Because they are burning coal and they are not enforcing environmental standards. And they are, if you will, pushing the air pollution

that they're generating onto the rest of the world. They actually put their coal-fired plants on the Pacific coast so that the air stream will carry it over to California, And a significant portion of the Sox and Knox in California is from China. So what do we do about that? We acknowledge this nexus. Again, it is energy use, the economy, military strength, and global greenhouse gas emissions. If we say, okay, the United States is going to put a carbon fee on any import that is not within 20% of our standards.

Well, China is like 100% of our standards. You're now going to have a fee on the excess carbon intensity of goods China produces. What that does is it decreases the relative advantage China has. I'm a company. I want to set up. If I set up over there, I don't have to comply with pollution standards, so therefore I make more money. And now we say, oh, if I set up there, I've got to pay a higher fee to import to the rest of the world. And so I'm going to maybe set up in the United States and set up.

It also tells Vietnam, if I want to be able to import to the United States, don't copy China's paradigm. We can actually out-compete China by enforcing environmental regulations, and we will grow and they won't, because our goods will be cheaper because we're not paying the carbon intensity fee. It's good for our workers. It's good for our economy. It's going to be good for the world's environment. And relatively speaking, it decreases China's ability to fund their military machine. What is the difference between that and a tariff? So it would be a form of a tariff. It would replace the tariffs, which we already have.

But the chief difference is that you can get out from underneath it. All you have to do is comply with the environmental standards, which we put upon ourselves. If you comply with that, there is no tariff. So, if you will, it's a way to escape from paying a tariff, and that's merely to comply with world standards. Who isn't going to support your bill? You know, it's really interesting because I found broad spread support. I found support among national security hawks who see this as a better, a more peaceful way to confront China. Among the economic hawks, my gosh, we're losing jobs to China because they're subsidizing

by not enforcing environmental standards and among the climate hawks because they say, wow, this is a way that we can do something for global Green El Scout submissions while acknowledging the progress that we've had. So you're going to introduce it that it's going to become law immediately? No, but I will say that I've had people on the right and the left who have either put in their own version since we've announced ours

or who've announced that they're very interested in what we're doing. very conservative national security hawks in the House of Representatives. I like that. I like that concept. And similarly in the Senate. And also, you know, Sheldon White House, who's on the environmental left, has put in his own version of such a bill. One more thing we can do, Sarah. If we collaborate with the Europeans and have a buyer's club, anyone who wishes to import into either the EU and the U.S.,

and throw in Canada, the UK, Australia, Japan, et cetera. Then you have the wealthiest nations in the world dictating the world's environmental standards in a way which our industries are already compliant. Our workers do okay. It prevents, you know, kind of the carbon leakage that could otherwise occur. Do you think this passes in the next Congress

and President Biden would sign it into law or does, do the midterm elections affect the outcome of this legislation? I can't say how midterms will affect it. All I can say is that whenever somebody says Congress can't accomplish which needs to be done, Congress actually surprises them and does something which needs to be done. Whether it's a COVID relief package, a bipartisan infrastructure bill, or the response to a volity, and now the electoral college act. So there's always a nihilism, if you will, about whether or not Congress can do something. This is something which I think would help our working people. This got broad. bipartisan support on that. As I mentioned, national security and environmental support. So nothing has ever accomplished by a cynic. We continue to build out support for this. And I'd like to think that we can accomplish it. And one more thing, imitation is the highest form of flattery. I now have people on the right and the left talking about it on their own. I, who have worked in, you know, campaigns for 20 years as a campaign operative and watching the current cycle a little bit confused, because I

think that this campaign will be decided, broadly speaking, on gas prices. And I think we'll look back and say that it was decided on gas prices. And yet, I see zero Republican candidates running on gas prices. They've had incredible message discipline over, for instance, crime, some on inflation, although again, really focused on crime, for instance, the Democrats have been really focused their, you know, their TV ads, at least on the abortion message, if Republicans don't take back the Senate, which will potentially cost you a chairmanship. So I know that you would, all things being equal, very, very much like the Republicans to take back the Senate. What will they have done wrong? I would argue that when you're talking about inflation,

and if you look at polling, it's inflation, crime, and the border, inflation takes in the high price of gasoline. And it also takes in the high price of groceries, which is very much related to the high price of natural gas and other things. I also think that of those people who are making their decision on inflation, that's baked in. I mean, it's not like if you've been harmed by inflation, you're going to vote for the Democratic Party.

No way. If you're going to vote on inflation, you've already decided you're voting Republican. The areas that may be more in doubt are whether or not crime, which party has a better agenda for crime. So if candidates are truly emphasizing crime over inflation, they may have some focus group or other data suggesting that that's a better way to go right now because they've already won the inflation voters. I talk about inflation all the time. I know others do. And then if we don't win, that's a hypothetical. And I'll dodge that because I just think that we're going to win. And as opposed to the hypothetical. But I love that you say it out loud. Oh, I think we're going to win. And by the way, no, no, no. I love that you say you're dodging the hypothetical. It's just, it's great.

Yeah, because I think the American people are fed up with the way it is right now. You're always a show your work guy, and it's wonderful. Okay, last question, or at least maybe it's a two-parter, we'll see. Senator Ben Sass from Nebraska announced that he is retiring, that he is the only finalist to lead the University of Florida as president of their university system, making, I would think, a lot of senators wonder what other jobs are out there in those In those frustrating moments of being a U.S. Senator, sure, there's perks, but boy, there's a lot of downsides. You were a doctor before you became, you still are a doctor, but you were a practicing

doctor before you became a senator. So you can't pick doctor. But what is the job that you would like to have post-Senate career? If you could bend SAS, pull your parachute cord, head out into the sunset. What's that job? Yeah, so I'm assuming I can adopt another skill set. Yeah, definitely. I would like to be an NBA center. Oh, wait a second. You can't adopt a new height. I'd like to be the Greek freak. You know what I'm saying? That's who I really want to be. You know, the movement of the mobility of a point guard with the height and the jumping ability of a center. That's, that's going to be my next career. Got it. Oh, okay. So all of those compliments I was giving you about all your straightforward answers

and you pick that you would grow, get younger, and have a different skill set. Hey, as long as we're waving the magic wand, I mean, why don't I go a whole hog, right? I can tell your skepticism about the ability of Congress to pass a C-BAM, a carbon border adjustment. So I'm just feeding into your skepticism overall. Fair enough. See, and I was, you know, if I were a senator from Louisiana, I would go back and it would definitely be food related. It would be something where I would get to eat delicious Louisiana.

food every day. So there's a friend of mine who was a general surgeon. I graduated with him, and he retired from his practice, and now he's a tour guide in the French quarter. Yes. Maybe I would be the food writer for the Times Picayune or something. Oh, yeah. That would be now called The Advocate, but still. Yes, sorry. We've had, by the way, just had an incredible, incredible meal in New Orleans at a restaurant which is not that well known. I'm thinking, even a not well-known restaurant, not very crowded, you get an incredible meal. So, anyway, just to say.

Are you allowed to share the name of it? Oh, let me look up that real fast. We'll stipulate. There were no kickbacks given. There were no kickbacks given, and that was, that meal was the Eliza Jane. Ooh, I'm going to put it on my list. Oh, it was. My wife was with me, and we both agreed.

It was just a wonderful meal. What did you get? I got a duck confit for an appetizer, then Koschon Delay, which is a way that the French people, in Louisiana would take a roasted pig. It literally means I'd pig of milk or something, but they would take a, and they would slow roast it for 24 hours, but they had it, and they had a strip of it within a sweet potato mash, and it was just fantastic. That sounds incredible. So I go to New Orleans relatively often, and Herb Saint,

the taxi knows, like you take me directly from the airport to Herb Saint any time of day. Their lunch is amazing, their dinner is amazing. But I'm always looking for new ones. So we started off about to have a debate over food in Texas versus New York. Orleans, but I think that you've now conceded that all of Louisiana is better than the high point of Texas. Well, we've got our own Brennan's in Houston that I've been to many a time. Now, it's an import from Louisiana. I happened, you know, I clerked on the Fifth Circuit, and so we sat in New Orleans for one week out of the month for a year. And so thanks to the very generous per diem, delivered by Tom DeLay, that's way out of whack with where Houston actually needs to be,

I got to try some of just the best restaurants in New Orleans. It became really partial to it. Have you ever had charbroid oysters? Yes. Oh, go to Dragos, charbroid oysters. I mean, and I just know that because the owner of the restaurant, the guy that invented the recipe that is in Austin, and he goes into the restaurant and they're serving charbroid oysters.

He asked to see the chef, and the chef came out. He gave him his car. He goes, oh, man, my gosh, you're the guy who invented this. And so anyway, the best of Texas is an imitation of Louisiana. oh wait a second i think that our our german band of smoked meats there is is its own thing look i don't think we compete on cajian food i think that's very clear i've spent many a time in beaumont and along our border and yep you might as well cross the border y'all just do it better but we do plenty our breakfast tacos come on well and your barbecue is great i'll give it to you i'll give it

to you either way no matter which state you go to we can guarantee you a stomachache and some meat sweats, if you do it right. Thank you, Senator Cassidy. Thank you so much for explaining all of this. I think the border adjustment stuff is so interesting, and I'll be watching it with lots of interest come the new Congress. A market mechanism to lower carbon emissions. Yeah, I appreciate it, Sarah.

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